Getting paid — Subcontractors, materials suppliers will have lien option on July 1

Mississippi construction subcontractors next month will have a powerful new tool to ensure they get paid for the work and materials they provide on private-sector jobs.

They have always had the option to seek a court judgment against a property owner who stiffs a general contractor and leaves the general without a way to pay the subs. But on July 1 under Senate Bill 2622, subcontractors and others classified as tier 2 and 3 contractors can put liens on a project, effectively preventing the sale or transfer of the property until the lien is lifted.

General contractors and others such as engineers and surveyors with a direct contract with the property owner have had the option to obtain a lien. That option was extended to subcontractors only on public-sector jobs.

Until now, outside of a costly venture into court, subcontractors on non-public jobs have had no “rights whatsoever,” said Bob Covington, director of the Mississippi Development Authority’s Minority and Small Business Development Division.

Taking a developer or property owner to court is not just costly, he noted. It puts the subs’ reputation at risk, he said. “It kind of puts the sign on your back that says, ‘Don’t mess with this guy.’”

While the new lien option can be a powerful equalizer, it’s only available to tradesmen licensed by the Mississippi State Board of Contractors. A number of subcontractors in the state have worked many years unlicensed simply by having “latched onto a general contractor,” Covington said.

But when a property owner stiffed the general contractor, the subs often went unpaid for the their labor and materials, he noted.

“This is probably what drove the legislation,” he said. “It happens a lot more than you know.”

Covington is holding seminars at 6 p.m. Tuesday in Gulfport and 6 p.m. June 17 in Jackson to acquaint tradesmen with the new construction lien law. Getting licensed will be emphasized, he said.

“We’re going to have s State Board of Contractors representative there to detail the importance of having the license and how to go about getting it.”

Years in the Making

Absent a 2-year-old court ruling, Mississippi’s construction lien law probably wouldn’t have passed the Legislature, say Buddy Edens, CEO of the trade group Mississippi Associated Builders & Contractors, and Marty Milstead, executive vice president of the Homebuilders Association of Mississippi.

“It was something we’d been pushing for a while, Edens said. The turning point was came last October when the U.S. Fifth Circuit Court of Appeals ruled the state’s “Stop Notice” law unconstitutional, he said.

The Stop Notice law allowed an unpaid sub to ask in writing for the property owner to withhold further payments to the general contractor until he paid up. “The judge said there is no due process. You can’t just hold somebody’s money up,” Milstead said, citing a 2012 Chancery Court ruling in Oxford in the case of Noatex vs. King Construction.

The Fifth District Court of Appeals called the state’s Stop Notice law “profound” in its lack of due process. “The Stop Notice statute deprives the contractor of a significant property interest, the right to receive payment and to be free from any interference with that right,” the court said.

While the ruling gave property owners a way to continue their projects and freed them from getting caught in the middle of a pay dispute between a general and subcontractors, it left subcontractors and materials providers nearly powerless. They had no expedient way to address non-payment from contractors.

Until this year, Edens said, “The history of getting a lien law passed was simply that you couldn’t get one passed.”

Much of the opposition over the years came from the Mississippi Bankers Association. Bankers “didn’t want to get into a position where they could be forced to pay twice,” Edens said.

But with protections in the new law to prevent double payments, bankers “became very viable partners in trying to get the new law passed,” Edens added.

The lien law also subjects general contractors to triple damages for withholding payments to subs after receiving payment from the property owner.

“It’s a step in the right direction,” said the Homebuilders Association’s Milstead.

The court ruling “left a real mess” that the legislation cleaned up, he added. “We think it should give some recourse to those who aren’t getting paid and clear those who are paying their bills,”

Edens said Mississippi risked losing crucial tradesmen and materials suppliers had it not provided the lien option. “We have some folks who said if they can’t get protection, we aren’t going to stay here and do business. This is long overdue. It’s not a perfect bill, but it is better than what we had before, which was nothing.”